On the Fiscal Policy in Malaysia: An Econometrical Analysis Between the Revenue – and Expenditure

Abstract

This study aims to assess the relationship between government spending and government revenue in Malaysia. The study of the causal relationship between revenue and public expenditure has important implications for the choices of fiscal policies in the field of public finances. So, this study uses annual data for the period between 1985 - 2016 with Zivot and Andrews (1992) methods and Granger causality tests. Our results sustain the spend-and-tax hypothesis highlights how the increase in tax pressure is the wrong method to contain budget deficits. In fact, in addition to reducing the disposable income of households, a tax policy of this type would reduce savings. Therefore, also the investment. All this would hurt Malaysia’s economic growth.